Build or Buy?

Despite the marketing prominence of large software vendors and the surprising proclamation from one industry analyst that it had been two years since anyone had posed a build-or-buy question to them, totally custom CRM software is not dead. According to an August 2002 Forrester Research brief, internal CRM systems still account for a substantial number of installations, outranking any brand except Siebel in certain markets. On the high end as many as one in six services firms rely on homegrown CRM technology, and in general the closer the coordination between IT and business objectives, the more likely internal developers will be tapped. "From all the surveys we've done, certainly the in-house CRM deployments have led by a wide margin over any other vendor in terms of what people are really using," says AMR Research senior analyst Kevin Scott. As solutions from dedicated CRM vendors evolve, however, in Scott's opinion the "build" decision is relevant for a shrinking number of organizations. The ground-up approach has its challenges. For example, the risk is entirely internal. "You have no protections if the code doesn't work, and I would say most companies don't tend to use lessons learned from past projects to steer their own internal customer in the right direction," says Beth Eisenfeld, a senior analyst with research firm Gartner Inc. In a tight market internalizing development can seem like an attractive way to use existing resources. But some experts warn that custom development is often more expensive in the long run. In particular, planners tend to neglect to factor in support, maintenance, and upgrades as true costs of the system--a system that IT will have to continue to staff. "From my past experience with other companies, where we built our own applications, you pay for it and keep paying time and time again," says Debra Morton, director of business systems for enterprise storage vendor McData of Broomfield, CO. Some aspects of customer interaction have a relatively common, predictable workflow. This is where packaged software has almost total dominance. "The call center is an area where normally there's a finite set of activities that occur, and you can pretty much configure off-the-shelf solutions [to fit,]" says Neal Levin, managing director of the CRM solutions group for consultancy BearingPoint. Internal developers have a harder time denying spurious feature requests, which results in an unwieldy application that is expensive to manage and maintain, according to Sheryl Kingstone, a program manager with research firm Yankee Group. "You're better off shutting off some functionality [in a packaged application] and following a workflow than to try to make it fit everything under the sun." McData's Morton agrees. In making a switch to Oracle's workflow-based CRM modules in 2000, the company took the opportunity to improve standard practices. "Our processes were not optimal. [The software switch] was an opportunity to reengineer processes, and to use some of the lessons other people have learned" that were codified in the Oracle applications, she says. Exactly What You Want The time and effort involved in replicating the available features of a major CRM system would be staggering, so much of the ongoing CRM-related custom development builds only technology that enterprises see as necessary to the business. These applications tend to be just-in-time pieces that can be difficult to obtain on the open market. San Francisco--based Union Bank of California, for example, engaged BearingPoint to write and implement a custom retail-banking SFA application. The bank already had back-end and commercial banking systems that were not candidates for replacement, so it couldn't get a proposal that fit its needs from the packaged software industry. "Vendors really wanted to sell us everything again," says Jo Ellen Hart, a Union Bank of California vice president. Legacy for Life, on the other hand, couldn't find an off-the-shelf package robust enough to meet its needs. Bucking the trend that says small companies should buy their CRM solutions, the Melbourne, FL, network marketer of nutritional products recently replaced one custom CRM system with a new one. The company now has more than $28 million in annual sales; the old system--designed at a time when Legacy's sales were just over $1 million--simply couldn't keep up with the business. Although the company had originally intended to go with an established product, after a three-month search beginning in January 2001, the CRM team decided that the web of interactions the company manages was too complicated for the available options. "We had requirements that just aren't there in the off-the-shelf applications that appeal to your average retail or catalog company," says IT director Christian Kelly. "We had to have a reliable high-performance commission payout structure, and needed seamless integration between what would be our back office and our distributors' back office." Engaging Tampa, FL--based consultancy Tribridge to develop the application, the firm spent another three months working with call center staff and top-performing distributors to design a product that would manage the complex sales process and give inquiring distributors the answers they need about their sales and pipeline performance quickly and accurately. Kelly emphasizes that he was not married to a custom application despite Legacy for Life having run on one for years. "Not one of the [packaged CRM applications] fit the criteria of mature enough, stable enough, or scalable enough to fit our needs," he says. The Tribridge custom solution solved his problems in a time frame shorter than he expects he would have spent retooling an off-the-shelf product. "Post-rollout, we're extremely pleased, and I can spend my time and my team's time bringing value to the company." Are Brands Best? For companies that don't have such specific requirements as Union Bank and Legacy for Life, packaged software provides an immediate breadth of functionality that would be difficult to cost-effectively capture with internal development. And the increasing availability of preconfigured vertical versions of industry-leading CRM suites is another compelling reason to consider implementing a packaged solution. However, some industries are still better served than others, says Brian Crockett, an associate partner at Accenture. "In the hospitality business, some of the leading software providers are just beginning to develop [vertical applications]," he says, noting that the challenges posed by reservation engines and on-site property management programs are not the same as, for instance, a relatively standardized CRM-ERP integration. There is also the argument that in many cases packaged software ends up being significantly faster to implement and deploy than a custom solution. BearingPoint's Levin, who oversees custom development and packaged CRM customization and integration projects, estimates that a software build cycle typically extends the term of the project between 30 and 50 percent. That time can get expensive, of course. Union Bank's Hart notes that "we didn't get the economies of scale" using BearingPoint for custom development, but feels that the company's own development team benefited from working closely with the outside developers on a ground-up project. "They don't get the opportunity to get involved with new technologies if we just buy things and install," she says. When to Customize With a CRM project of any appreciable scope, a company must configure or customize a packaged solution to best fit its needs. For some organizations it can be easier to work within the bounds of a shipped product configuration if the business implications of that software are worked into the company's processes before the new CRM software goes live. Even with a multiyear project plan, Community First Bankshares of Fargo, ND, did not want to build a CRM platform from scratch or go with a product that would have to be massively retooled to fit its needs. So the bank's internal IT staff is doing what some might consider working backwards. The IT staff is building an integration platform, including performing database merges, before implementing a new CRM system purchased from financial market specialist Getronics. Getronics is working simultaneously to customize the product to the bank's existing infrastructure. Community First Bankshares CIO Dan Fisher believes this order of operations and division of labor will be the key to a successful implementation. "The number one issue with regard to CRM installations is that a CRM package has been purchased and then integration has been attempted," he says. "That has been a dismal failure, and it's been the most criticized area of CRM implementation. We are creating the integration before we install the application." Based on current economic conditions, some companies may be averse to spending significant time and money on customization with a vendor that might not exist next year, and so may prefer to build in-house. However, it may be possible to be protected from the crushing effect of a software developer bankruptcy by having source code placed in escrow. "It still can be your code" in case of dire emergency, says Yankee Group's Kingstone, noting that both packaged software vendors and even some online-only CRM vendors will negotiate code escrow agreements in the sales and service contract. If component-based development such as J2EE and .Net catches on in a substantial way, those technologies may make a good marriage of both the build and the buy worlds, with greater speed and lower cost than either offers today, experts say. CRM specialists could create highly flexible modules for sales, service, logistics, and back-office interface, while internal or commissioned experts integrate and shuffle the pieces in a manner that best suits the company structure. In the meantime, companies should carefully consider whether their IT resources are best spent reinventing a wheel that the CRM vendors in their tier have already built. "It really gets down to opportunity cost," Kingstone says. "Is that the best use of that person's time, creating something that's already been built, versus taking that and deploying it in a more effective manner that will automatically in the future be able to be maintained by someone else?" Jason Compton is a freelance journalist based in Evanston, IL.